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Judgment
SANDEEP K. SHINDE, J",,,,
In exercise of the powers under Section 22(4) of the Banking Regulation Act, 1949 (hereinafter referred to as the BR Act), Reserve Bank of India",,,,
vide order dated 30.12.2011 cancelled the Petitioner's licence to conduct banking business and issued mandate to stop “business of bankingâ€,",,,,
within the meaning of Section 5(b) of the BR Act with immediate effect. This order was carried in appeal under Section 22(5) of the said Act before,,,,
the Appellate Authority, i.e., Ministry of Finance (Department of Financial Services) Government of India. Appellate Authority vide order dated",,,,
23.4.2013 upheld the order of the Reserve Bank of India and as such, the appeal was dismissed.",,,,
Aggrieved by the order passed in Appeal as aforesaid, this Writ Petition is preferred by the Bank through its Chairman Mr. Kolur and by the CoÂ‐",,,,
operative Bank Employees' Union under Article 226 of the Constitution of India.,,,,
Initially, Petition was filed against the authorities under the said Act and Maharashtra Co operative Societies Act. Later in terms of the order",,,,
dated 16.1.2014, directors and the borrowers, who allegedly siphoned the funds of the bank were impleaded as respondents nos.10 to 101. Deposit",,,,
Insurance and Credit Guarantee Corporation has been impleaded as Respondent No.102 in terms of the order dated 21.2.2014.,,,,
Events,,,,
On 3.10.2011 Chief Manager of the bank lodged a complaint with the Andheri Police Station, Mumbai and reported that financial position of the",,,,
bank has worsened since many CC loan accounts of the huge amount were classified as NPA. He reported particulars of several irregularities,,,,
committed while sanctioning loan. He further reported that Branch Manager Mr. Kadoli and Board of Directors in collusion with each other violated,,,,
regulations of CC Limit and, misused their powers and disbursed loans without following rules. He reported 59 loan holders of Andheri Branch,",,,,
Branch Manager Mr. Kadoli and officers of the Board in collusion with each other disbursed the loan of Rs.575020936 by forging the documents,,,,
which resulted in huge loss to the bank. He reported act of cheating and misappropriation of funds by the Branch Manager and Members of,,,,
Board. It resulted in registration of C.R. No.92 of 2011 under Sections 420, 409, 465, 467, 120B of the Indian Penal Code, 1860.",,,,
Commissioner for CoÂoperation, vide orderdated 3.1.2012, appointed Board of Liquidators for winding up of affairs of the PetitionerÂBank, under",,,,
Section 110ÂA (ii) of the Maharashtra CoÂoperative Societies Act, 1960 and directed Board of Liquidators to submit quarterly progress report to him,",,,,
under the intimation to Deposit Insurance and Credit Guarantee Corporation.,,,,
Before dealing with the contentions raised by the petitionerÂBank, facts relevant for the present case to be stated are as under :",,,,
(i) On 22.8.1973, PetitionerÂBank was registered as CoÂoperative Society under the Maharashtra Co operative Societies Act, 1960 (hereinafter",,,,
referred to as the 'MCS Act, 1960');",,,,
(ii) On 26.3.1974, a licence was granted under Section 22 of the BR Act;",,,,
(iii) On 31.3.2006, 31.3.2007 and 31.3.2008, the ReserveBank of India conducted statutory inspection of the bank with reference to its financial",,,,
position. Pursuant to the said statutory inspection, Bank was advised not to extend area of operation; not to open new branches, not to declare",,,,
dividend and also advised to refrain from paying interest, etc. Bank was advised to set up recovery efforts and maintain CD ratio at sustainable levels.",,,,
Bank was also advised to explore the possibility of merger with sound bank.,,,,
(iv)Statutory audit with respect to financial position of the said bank as on 31.3.2009 was also conducted and was advised on 29.10.2009 not to resort,,,,
to borrowings or allow preÂmature withdrawals of deposit;,,,,
(v) On 8.2.2010 Enquiry Officer under Section 83 of the MCS Act reported that the bank had disbursed loans having insufficient mortgage security,,,,
and lack of repayment capacity of borrowers (76 Loan Account) with total outstanding of 6253.44 Lakhs.,,,,
(vi) Statutory inspection with respect to its financialposition on 31.3.2010 revealed that;,,,,
(a) Net worth stood at (Â)3383.32 Lakhs and asset Capital Adequacy Ration (CAR) stood at ( Â ) 53.2% against regulatory requirement of 9%.,,,,
(b) Erosion in deposit was to the extent of 15.9%.,,,,
(c) Gross and net NPAs formed 69.8% and 58.4% of gross and net advances respectively.,,,,
(d) Inspection report was forwarded to the Bank for rectification of deficiencies; however, RBI found compliance report was not satisfactory.",,,,
(e) Assets net worth as on 31.3.2011 was found at Rs.(Â)5231.01 Lakhs as against Rs.(Â) 3383.32 Lakhs as on 31.3.2010 which indicate further,,,,
deterioration in already precarious financial position of the bank.,,,,
(f) Recovery of NPA was not satisfactory;,,,,
(g) Quality of management was not satisfactory.,,,,
(h) Assets losses increased from 3180.78 Lakhs during 2009Â10 to 3659.22 Lakhs during 2010Â11.,,,,
In view of precarious financial position as revealedby Inspection report with reference to financial position as on 31.3.2011 and inability of the,,,,
management to bring about improvement, Bank was placed under all inclusive directions under Section 35A of the BR Act with effect from close of",,,,
business on 3.8.1011.,,,,
Reserve Bank noted the following deficiencies in the functioning of bank ;,,,,
(a)Financial Position of the bank was precarious and there is no scope for revival. (emphasis supplied)Â Â Â Â Â Â Â Â Â,,,,
 (b) Bank was not in a position to pay present and past depositors in full, as and when their claims accrue.        Â",,,,
 (c) Affairs of the bank were being conducted in the manner detrimental to its interestÂdepositers.,,,,
(d) Public interest would be adversely affected if the bank is allowed to carry on its banking business any further,,,,
(e) Bank did not comply provisions of Section 11(1), 22(3)(a) and 22(3)(b) of the BR Act.",,,,
In view of the aforesaid serious deficiencies andirregularities and deteriorating financial position of the said bank and upon the recommendations of,,,,
the Task Force on CoÂoperative Urban Banks (TAFCUB) showÂcause notice was issued to the bank requiring it to show cause as to why licence,,,,
granted to it under Section 22 of the BR Act to carry on banking business should not be cancelled and bank should not be taken to liquidation. Thus,",,,,
showÂcause notice dated 17.8.2011 was issued. Bank replied said showcause notice followed by additional replies/submissions. RBI after examining,,,,
replies found the same was not satisfactory and thus reached a conclusion that allowing the bank to carry on business any further would be,,,,
detrimental to the interest of the present and future depositors and as such, issued order dated 30.12.2011 for cancellation of banking licence.",,,,
The order dated 30.12.2011 was challenged in appeal before the Ministry of Finance but it met with same fate.,,,,
Heard Mr. Sasi learned counsel for the Petitionerand Mr. Dhond the learned Senior Counsel for the Reserve Bank of India. Mr. Hatle, Mr. Patil,",,,,
Mr. Mansuri and Mr. Patki, Additional Government Pleader for the other Respondents.",,,,
Mr. Sasi, the learned counsel for the Petitioner contended that, steps taken by the RBI for cancelling licencee were harsh and in breach of",,,,
provisions of Section 22 of the said Act. He would submit that new committee of the Bank had taken charge on 31.3.2011 and immediately,,,,
thereafter on 17.8.2011 showÂcause notice was issued under Section 22 of the BR Act. He would submit that issuance of showÂcause notice,,,,
immediately after the new committee resumed the office is not a coincident. He would suggest, it was motivated action at the behest of some persons",,,,
who harboured grudge against the new Committee.  He would submit that, due procedure has not been followed while cancelling the licence of",,,,
the PetitionerÂBank. The learned counsel has brought to our notice, provisions of Section 35(1A)(a) read with Sub section (3) and would contend",,,,
that procedure contemplated under SubÂsection (3)Â was not followed inasÂmuch as person who has scrutinised the affairs of the banking company,,,,
and its books and accounts has not examined on oath directors or other officers of the Bank in relation to its business. He would submit, it was gross",,,,
irregularity. He would submit that new managing committee of the bank cannot be penalised for alleged illegalities of the earlier managing,,,,
committee without affording opportunity to them. He would submit that it was only in March, 2011, new committee took over the office of the",,,,
Bank and, therefore, RespondentÂAuthorities under the B.R.Act ought to have given opportunity to the newly elected body. He has drawn our",,,,
attention to the affidavit dated 7.12.2017 filed by Mr. Shahaji M. Patil Chairman Board of Liquidator and would submit, bank has held sufficient",,,,
Assets to absorb the liabilities. He made endeavour to submit facts and figures reflected in the affidavit of Board of Liquidator which according to,,,,
him clearly indicates positive sign of revival of the financial position of the bank. In other words, he would contend that RBI failed to consider that",,,,
the Bank's financial position is retrievable as its asset position is clearly on the higher side as against deposits to be repaid and that mere inability of the,,,,
bank to immediately repay the deposits is not ground for cancellation of licence.,,,,
   As against it, Mr. Dhond, learned Senior Counsel appearing for the RBI has taken us through the order dated 30.12.2011 and more",,,,
particularly the paragraph 2 thereof. He has brought to our attention comparative table reproduced in the said order showing new worth of the bank as,,,,
on 31.3.2009, 31.3.2010 and 31.3.2011. He has pointed out that in 2009 net worth was (Â)2551.63 Lakhs whereas as on 31.3.2011 it declined to",,,,
(Â) 5231.11 Lakhs. He has also pointed out that CRAR ratio; which was (Â) 35.4% as on 31.3.2009 which further declined to (Â) 139.60 in,,,,
March, 2011. He has also pointed out that net NPA was 13%Â as on March, 2009 which escalated to 33% in 2011.",,,,
. Besides, he has drawn our attention to provisions of Section 22(3)(a) which reads as under;",,,,
 “A bank is or will be in a position to pay its present or future depositors in full as their claims accrue (emphasis supplied).â€,,,,
. Mr. Dhond pointed out that deposit erosion was 33% as on March, 2011 which indicates petitionerÂbank was not in a position to settle dues of its",,,,
present depositors in full as and when their claims would accrue.,,,,
Mr. Dhond, Learned Senior Counsel wouldsubmit that, upon objective assessment of the statutory inspection reports, under Section 35, to its",,,,
financial position as on 31.3.2010 and reports of earlier financial years, Respondents concluded that bank's operations were being carried on in the",,,,
manner that was detrimental to the interest of the depositors and in violation of Section 22(3) (b) of the Act. Besides he has brought to our notice,,,,
inspection reports and the findings recorded in the order dated 30.12.2011. He would submit that, findings as found in paragraph 12 of the order",,,,
dated 30.12.2011 are findings of facts recorded by the experts. He would submit that such findings in paragraph 12 are based on facts and figures as,,,,
revealed upon inspection of books of the PetitionerÂBank. Mr. Dhond would also submit, Petitioners have not disputed facts, figures and finding",,,,
recorded in the various inspection reports. He would submit that the RBI has concluded that financial position of the bank is precarious and there is no,,,,
scope for revival. He has also drawn our attention to the conclusion, that “public interest would adversely affect if the bank is allowed to carry",,,,
on its banking business in futureâ€.  Mr. Dhond has also taken us through the order dated 23.4.2011 passed in Appeal by the Ministry of,,,,
Finance.,,,,
Mr. Dhond has also pointed out directivesissued on 2.8.2011 by the RBI under Section 35A of the BR Act. Mr. Dhond has vehemently submitted,,,,
that in spite of directives issued by the RBI to the bank after carrying out inspection of its affairs, there was no improvement and having found",,,,
management had not displayed sufficient seriousness in dealing with the staff responsible for the irregularities and having found board of directors,,,,
were ineffective and are responsible for deterioration of financial position, authorities of RBI after receiving the recommendations of the Task Force",,,,
on CoÂoperative Urban Banks (TAFCUB) issued a showÂcause notice to bank and after following due procedure cancelled the licence. He would,,,,
submit that the order is based on the objectiveassessment of facts revealed in inspection carried out by the authorities for the period 2009, 2010 and",,,,
2011.,,,,
We have gone through the impugned orders and material placed on record by the Petitioners and Respondents. It reveals;,,,,
(1) Decision of the RBI to cancel the banking licence of the Bank was taken in the interest of the depositors.,,,,
(2) The RBI after satisfaction arrived at uponseries of inspections and the reports that the affairs of the bank have been conducted in the manner,,,,
detrimental to its present and future depositors and that public interest would adversely affect if the bank is allowed to carry on its banking business,",,,,
cancelled the banking licence of the bank.,,,,
(3) That before taking this step, the RBI had given opportunities to the bank to rectify defects revealed in the inspection report of its affairs.",,,,
(4) As the Bank failed to rectify defects and improve its functioning, the RBI had no option but to cancel the licence.",,,,
Having heard the Bank and the Respondent authorities, we are required to answer following points;Â Â Â Â Â Â Â Â Â Â Â Â Â Â",,,,
 (i) Whether order of cancellation of Petitioner's bank licence by the RBI is legal and valid ?              Â,,,,
 (ii) Whether future ability of the bank to pay its creditors but its inability to pay them at the given time would be a consideration to interfere with the,,,,
administrative order cancelling banking licence of the Petitioner ?,,,,
  (iii) Whether Petitioners have made out a case for review of administrative order of cancelling banking licence ?Â,,,,
The material on record discloses that the officials of the RBI made a periodical statutory inspection of the bank in exercise of its powers under,,,,
Section 35 of 1949 Act for the year ending March, 2009, 2010 and 2011. Material on record shows that with reference to financial position of the bank",,,,
as on March 2006, 2007 and 2008, supervisory action was initiated vide letters dated 18.6.2007, 17.3.2008 and 3.7.2009 and the bank was advised not",,,,
to extend the area of operation, open branches, declare dividend and not to resort to borrowings and premature withdrawals. Authorities of the RBI",,,,
found with reference to the Bank's financial position as on 31.3.2006 that vehicle loans granted in 145 cases, the lien endorsement obtained from RTO",,,,
was found not to be,,,,
genuine. Besides, enquiry under Section 83 of the MCS Act revealed fraud and misappropriation of funds at Kandivali Branch and irregularities in",,,,
loans sanctioned at Andheri Branch. In the order dated 30.12.2011, such deficiencies and irregularities were noted by the officials of the RBI.",,,,
Sr.No.,"Parameters
(as
assessed)",,"Â
Inspection      Â
as on",
,,"March 31,
2009","March 31, 2010","March 31, 2011
1,Net worth,(-)2551.63,(-)3383.32,(-)5231.
2,CRAR,(-)35.4%,(-)53.2%,(-)139.6
3,"Deposit
Erosion",13.0%,15.9%,33.4
4,"Net
profit/loss (-)",(-)3350.95,(-)3180.78,(-)3659.3
5,"Gross NPA
(%)","7608.78
(57.6%)",8149.80(69.8%),7633.36(79.1%)
6,"Net NPA
(%)","4488.08
(44.4%)",4952.29(58.4%),3449.51(63.0%)
PetitionerÂBank with some other coÂoperative bank. Applicants have also made grievance about the functioning of board of liquidators. They have,,,,
averred in paragraph 32 that value of the immovable property being more than 200 crores, revival of the bank is possible. They urged that committee",,,,
consisting of representatives of the shareholders/depositors of the Petitioners and of the Government be constituted to look after affairs of the bank.,,,,
. Though the Chamber Summons was filed in March, 2014, no steps were taken by the applicants therein to pursue the same. None appeared when",,,,
the petition was heard finally. In view of this, we dismiss the Chamber Summons being rendered infructuous.",,,,
Yet, another Application/Notice of Motion No.180 of 2017 is filed by the Petitioners seeking a relief/direction to constitute a committee of experts",,,,
to assist the investigating officers, ACP, Economic Offence Wing and also authorised officer under Section 80 of the MCS Act. Though this Notice of",,,,
Motion was filed on 8.5.2016, it was not pursued, it is rendered infructuous.",,,,
Deposit Insurance and Credit Guarantee Corporation has filed Notice of Motion No.110 of 2015 seeking directions to the liquidator to file,,,,
statement of accounts as per the provisions of the Deposit Insurance and Credit Guarantee Corporation Act, 1961. The learned counsel appearing for",,,,
the Credit Guarantee Corporation has not pressed this Notice of Motion. That as such, Notice of Motion No.110 of 2015 stands disposed of.",,,,
It may be stated that the board of liquidators appointed under the provisions of MCS Act has filed affidavit of one Shahaji M. Patil, Chairman of",,,,
the Board of Liquidator. Vide affidavit dated 6.12.2017, he has placed on record facts and figures and status of liquidation process as on 30.09.2017.",,,,
It appears from the affidavit that board of liquidators is functional and taking effective steps to complete the liquidation process. However, there being",,,,
voluminous documents and multiple proceedings, it appears inquiry is not likely to conclude in near future. Be that as it may, this Court has not",,,,
examined whether the board of liquidators is functioning effectively for concluding the liquidation process. It appears from the applicants in Chamber,,,,
Summons No.79 of 2014 that some of the members/account holders of the PetitionerÂBank have expressed their concern about the functioning of the,,,,
board of liquidators. Though we have dismissed the Chamber Summons No.79 of 2014 being rendered infructuous, we keep all the contentions of the",,,,
Applicants in the said Chamber Summons open so as to enable them to make the grievance , if any, against board of liquidators concerning liquidation",,,,
proceedings in appropriate proceedings as they deem fit and proper. We further make it clear that all issues concerning liquidation proceedings (not,,,,
being a subject matter of petition) are kept open to challenge by persons interested and/or who is aggrieved or likely to be aggrieved by the,,,,
orders passed and actions taken by the Board of Liquidators in the liquidation proceedings of the PetitionerÂBank.,,,,
. That for the reasons stated hereÂinÂabove, Writ Petition is dismissed with no order as to costs.Â",,,,